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Does a Mutual Fund’s Age Matter?

When comparing actively managed mutual funds for your portfolio, how much attention should you pay to a fund’s age?

On the one hand, research has shown that, on average, younger funds outperform older funds, perhaps because advances in technology give new fund managers an advantage over existing managers. As one might predict, this advantage dissipates over time as new funds enter the fray.1

On the other hand, it’s very difficult to assess whether a new fund will go the distance. “Investing in a brand-new active strategy is pretty risky, because you’re basing your entire investment on the promise of strong returns without a track record to back it up,” says Michael Iachini, vice president and head of manager research for Charles Schwab Investment Advisory.

That’s why, when selecting funds for inclusion on Schwab’s Mutual Fund OneSource Select List®, Michael and his team exclude those with less than three years of performance history. “We’re looking for funds with consistently strong performance relative to their peers,” Michael says. “Otherwise, we have no way of knowing whether their strategies have staying power or is just flashes in the pan.”

When it comes to index funds, however, age isn’t really a factor. “These funds are passively managed, meaning their entire strategy is to replicate a market benchmark rather than outperform it,” Michael says. “As a result, investing in a new index fund generally doesn’t carry as much risk as investing in a new actively managed fund, so long as it’s from a reputable source using an established approach.”

1Ľuboš Pástor, Robert F. Stambaugh, and Lucian A. Taylor, “Scale and Skill in Active Management,Journal of Financial Economics, 2015.

What You Can Do Next

View Schwab’s lists of funds prescreened by the experts at Charles Schwab Investment Advisory.

Important Disclosures

Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.

Charles Schwab Investment Advisory, Inc. (“CSIA”) is an affiliate of Charles Schwab & Co., Inc. (“Schwab”).

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.


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